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Even Oil Can’t Compete With Oil at $50 a Barrel

Sapphire's Green Crude produced from algae

Sapphire’s Green Crude produced from algae

During the past 10 years, we’ve heard and read an awful lot about “Energy Independence” – both from the biofuels industry and the fossil industry. Indeed, during times of $100-$140 a barrel oil, both sides had a point – we need to control our energy density.

Rewind back to just a few years ago and the onset of the shale oil era – when America all of a sudden was able to extract millions of barrels of crude that were previously unobtainable. Supply flooded the market, prices came down and everyone was happy.

Proponents of fossil energy proclaimed a new era of dominance. Opponents of biofuels suggested the demise of the industry. After all, biofuels can’t compete with $50/barrel oil.

Turns out, neither can traditional oil. This week, Bloomberg BusinessWeek has a fantastic piece on the impact of cheap oil, as well as our nation’s continued dependence on forces outside our control when it comes to energy.

The article notes: “Big projects intended to start pumping oil and natural gas 5 to 10 years from now are being canceled or put on hold as the price crash forced $114 billion in spending cuts on the industry.”

Further, “The collapse in crude prices has been so steep and so dramatic that most of the 200 major international oil and gas projects scheduled for final investment approvals in the next two years are susceptible to cancellation or postponement,” said Nick Lowes, vice president of oil and gas consulting at IHS Inc. “Sixty-six percent of those projects aren’t economical at current prices.”

If we are ever truly to achieve energy independence, we must not only develop domestic sources of crude, but extremely cost effective method of production. As we’ve seen with shale oil, the floor is about $50 a barrel. Other alternatives, such as tar sands, arctic exploration and deepwater drilling need similar economics. In short, all the easy oil has been found – it will only get more costly to find new sources.

Conversely, the cost curve for algae-based fuels continues to decrease. With access to free, cheap or plentiful CO2 from industrial sources, as well as free sunlight and a prolific growth rate, algae are well positioned to become a major source of domestic fuels.

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